Disappointing retail sales affect commercial REITs



Commercial REITs focused on the ISM data

Commercial retail REITs such as Simon Property Group (SPG) and General Growth Properties (GGP) focused most on disappointing retail sales data on Tuesday. This was bad news for the sector, especially since the set-up for the holiday shopping period was good given low energy prices and good weather.

Office REITs such as Vornado Realty Trust (VNO) and Boston Properties (BXP) focused on the NFIB Small Business Optimism Index, which observed an increase in hiring. This is good for the sector.

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Last week’s highlights for mortgage REITs

Last week didn’t have much in the way of important data for the mortgage REIT sector. However, interest rates were very volatile and touched 1.7% on the ten-year bond. European bond markets have been pulling global bond markets lower, and we’re seeing evidence of prepayment speeds picking up.

Note that the Mortgage Bankers Association Mortgage Applications index increased almost 50% as refinances picked up. This is an unexpected gift to mortgage originators like PennyMac (PMT) and potentially bad news for mortgage REITs like Annaly Capital (NLY) in that prepayment speeds are increasing. This makes higher coupon mortgage-backed securities less sensitive to interest rates. In other words, as rates fall, bonds stop going up.

Homebuilding sector gets slammed on earnings

There wasn’t a lot of economic data last week relevant to the builders. Actually, there wasn’t much data at all, given that the week after the jobs report tends to be data-light. Earnings season kicked off last week, and we had two major homebuilders report—KB Home (KBH) and Lennar (LEN). KB Home missed its earnings estimate and guided lower for Q1 as margins compress. Lennar reported earnings in line with Wall Street expectations. However, it was hit hard on margin guidance for 2015. The builders had been rallying lately on optimism on the spring selling season. But it looks like the days of big increases in average selling prices are over.


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